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Impermanent Loss Calculator

Estimate the potential impermanent loss when providing liquidity.

Crypto
Impermanent Loss Calculator
Estimate impermanent loss when providing liquidity to a 50/50 pool.

This calculator assumes a two-asset pool where Asset A is a stablecoin (e.g., USDC) and Asset B's price changes.

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Understanding a Key Risk in DeFi

Impermanent Loss is a potential risk associated with providing liquidity to Automated Market Maker (AMM) pools in decentralized finance (DeFi). It's the difference in value between holding two assets in a liquidity pool versus simply holding them in your wallet. This calculator helps you estimate this potential loss based on the price change of one asset relative to another.

The Impermanent Loss Formula Explained

For a standard 50/50 liquidity pool, the formula is: Impermanent Loss % = (2 * √(Price Ratio) / (1 + Price Ratio)) - 1

  • Price Ratio: The ratio of the future price of an asset to its initial price (Future Price / Initial Price). The result is always a negative percentage, representing a 'loss' compared to just holding the assets.

How to Use the Calculator

  1. Initial Price of Asset B: Enter the price of the volatile asset when you provided liquidity.
  2. Future Price of Asset B: Enter the expected future price of that same asset.
  3. Calculate: The tool will display the impermanent loss as a percentage. It also shows a practical example assuming a $1,000 initial investment.

Real-World Example

You provide liquidity to a USDC/ETH pool when ETH is $3,000. You later want to see what your impermanent loss would be if the price of ETH rises to $4,000.

  • Initial Price: $3,000
  • Future Price: $4,000
  • Price Ratio: 4000 / 3000 ≈ 1.333
  • Calculation: (2 * √1.333) / (1 + 1.333) - 1 ≈ -0.57%
  • Your impermanent loss would be approximately 0.57%. This means your assets in the liquidity pool would be worth 0.57% less than if you had simply held the USDC and ETH in your wallet.

Frequently Asked Questions (FAQ)

  • Why does this loss happen? It happens because the AMM constantly rebalances the pool to maintain a 50/50 value ratio. As one asset's price increases, the AMM sells some of it for the other asset, meaning you end up with less of the appreciating asset and more of the stable one.
  • If it's a loss, why provide liquidity? Liquidity providers earn trading fees from every swap that happens in the pool. The hope is that the fees earned will be greater than any impermanent loss incurred.
  • Is the loss 'impermanent'? The term is slightly misleading. The loss is only 'impermanent' because it's unrealized. If you withdraw your liquidity while the prices are different from when you entered, the loss becomes permanent.